| Ever since its reform and opening up, China has received a large amount of Foreign Direct Investment (FDI). With China's entry into World Trade Organization, economic globalization becomes an irrevocable trend, which is mainly embodied by FDI through Multinational Corporations. FDI has played an important role during China's opening up process, and has affected China's economy in every aspect.The paper provides an insight study of FDI in China from 1978 to present, with the first hand data available. The paper focuses on demonstration of the economic impacts of FDI, and looks into the prospect of FDI after China's entry into WTO. The significance of the research is to outline some valuable references for the present and future FDI policies in China. The paper consists of three parts:The first part is general illustration of FDI in China.The paper first defines Foreign Direct Investment, which sets the basic principle for the selection of statistical data. From an objective point of view, the paper introduces the IMF definition of FDI, OECD benchmark definition of FDI and the definition given by China's National Bureau of Statistics. Then the paper introduces the evolution process of the FDI-related policies in China, which will serve as the foundation for phase division of the sample data in the later empirical analysis. The evolution of China's attracting FDI can be divided into four phases: 1).from 1979 to 1985, the initial phase; 2).from 1986 to 1991, improvement of law system; 3).from 1992 to 1997, the rapid development phase; 4).from 1998 to present, the phase of adjusting structure and steady development.After that, the paper analyses the main determinants of FDI in China.As mentioned in an OECD working report, theory classifies FDI into two types: market-oriented and export-oriented FDI. China is thought to have both market-oriented and export-oriented factors which determine FDI inflows. To be specific, these factors are as follows: large size and growth potential of Chinese economy; openness to international trade and export promotion; low cost human resource endowments; all forms of necessary infrastructure; development of the regulatory framework and law system; investment protection and promotion.At the end of Part I, the paper specifies the features of FDI in China. By sorting out the latest data and information source, the paper introduces the investment scale of FDI in China, main countries of FDI origin, sectoral and geographical distribution of FDI in China, and the main forms of FDI.The second part analyzes empirically FDI impacts on China's economy.After taking an overview of the related research on economic impacts of FDI, the paper demonstrates the FDI impacts on China's economy in the following aspects:(1) FDI contribution to China's economic growth. The paper adopts the neo-classical growth model, which separates the FDI form the total capital input. This expanded version of Solow model is used to test the relation between FDI and economic growth. By estimating the output elasticity of the respective input, the paper calculates the contribution of FDI and other inputs to China's economic growth. In order to demonstrate the output efficiency of FDI, the paper develops a formula to calculate the ratio of marginal output of FDI to that of domestic investment.(2) FDI promotion of technological progress in China. As an essential channel to gain advanced technology, FDI plays an important role in China's technological progress. The paper uses theCobb-Douglas specification as the basis for output model to estimate technological coefficient, which could quantify the FDI promotion of technological progress in China. In accordance with the above-mentioned phase division of FDI evolution process, 1992 is the key turning point for FDI inflow. Before 1992, FDI flew into China slowly, while after 1992 FDI inflow has increased dramatically. Therefore, the paper estimates the technological coefficient for both periods before and after 1992, then dem... |
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